On the 4th December 2008, five leading financial institutions signed up to the Climate Principles, new guidelines developed to deal with the risks and opportunities posed by climate change.

The initial take-up was not as wide as hoped, possibly due to the financial crisis. However, Banks Crédit Agricole, HSBC, Standard Chartered, and reinsurers Swiss Re and Munich Re in signing up to what the Climate Group describes as “the first comprehensive industry framework” to address climate change.

The work is being undertaken by the Chinese Academy for Environmental Planning (CAEP), in cooperation with the Global Environmental Institute (GEI) and the University of International Business and Economics. The first draft is now being discussed, the GEI said.

A report released by the CAEP last week said the country lacked comprehensive environmental protection policies in its overseas projects, although investment had been expanding.

Statistics show that between 2002 and 2006, China’s overseas non-financial direct investment grew by 60 percent annually. By the end of 2006, 5,000 Chinese companies had set up nearly 10,000 directly invested firms and invested $90.6 billion in 172 countries.

China’s overseas investment and aid mainly focuses on exploring oil and other resources, processing, manufacturing, and construction in African and Southeast Asian countries. Without proper management, such projects are likely to cause environmental problems, the report said.

In April, several companies, including China Mobile, Haier Group, and China International Marine Containers, joined “Caring for Climate”, a voluntary UN initiative to combat global climate change. Liu Meng, director of UN Global Compact China Office, told China Daily earlier that these companies’ participation suggests that China’s business sector is catching up with its international counterparts on climate issues.

China National Petroleum Corporation, the country’s largest oil producer, has pledged to stick to stringent environmental requirements before deciding on overseas projects.

Currently, only four banks in China have either formulated independent environmental standards for financing, or have joined the United Nations Environment Program Finance Initiative to reduce environmental risks.

March 13, 2007- The International Finance Corporation (IFC) announced today the release of a new IFC publication, “ILO Convention 169 and the Private Sector: Questions and Answers for IFC Clients.”

The ILO Convention 169 and the Private Sector (PDF, 90kb) publication is intended as a practical guide for IFC clients who operate in countries that have ratified Convention 169 on Indigenous and Tribal Peoples. It is the first guidance of its kind written for the private sector in relation to Convention 169 which is directed at governments. IFC prepared this publication, in close consultation with the ILO, in response to the experiences that IFC has had in recent years with private investments affecting indigenous peoples and their lands in Latin America.

IFC hopes this publication will help to raise awareness about the Convention and its possible implications for private sector companies, and provide added clarity and guidance for IFC clients. The publication should be read in conjunction with IFC’s Performance Standard on Indigenous Peoples.

There were some excellent discussions on the Equator Principles (EP) at the Ethical Corporation – Sustainable Finance Summit. The main hot topics were:

The need to manage the success of the principles. The need to prevent their extension to areas other than Project Finance weakening the brand, due to insufficient leverage in such areas.

The EP’s have lead to an unprecedented level of collaboration by Financial Institutions.

There is a lack of mechanisms for demonstrating how the adoption of the EP’s have contributed to business performance and financial benefits, but despite this FI’s are see these issues as key to their core branding.

There is a need for a pragmatic approach to their application, in certain situations when good project sponsors and FI’s have turned down projects with high potential environmental and social risks, the projects have been progressed by weaker parties and consequently developed more severe environmental and social problems.

There is a need to manage expectations about what the EP’s will achieve – e.g. they have not been established to be a tool for equity.

There has been a lack of developing market banks and a notable absence of leading French Banks adopting the EP’s.

The need for sufficient lead in times to review Finance deals to avoid situations where problems are picked up too late on a project to enable compliance.

Some banks are striving to be leaders in sustainability, while others believe the EP’s have created a level playing field.

I will be attending this event at the end of November, and I hope to see all those of you who are interested in this topic there. This will be a key event for all practitioners in this area, and will provide an excellent forum to share best practice. I’ll be posting feedback after the event, so if you don’t make it, come back here and catch up on what you missed.

Recognition of the key role of financial institutions in stable and sustainable development has come. This leading-edge conference will show the way forward on these difficult, but essential issues. As banks go truly global, many for the first time, they are entering and whole new world of trust, risk – and opportunity – that must be well managed.

The newly revised Equator Principles now represent some 85% of global project finance , and that percentage is going up almost daily.

How banks can manage both profit and sustainability will be addressed early on by Jon Williams , a leading thinker and practitioner who is also Head of Group Sustainable Development at financial behemoth HSBC Holdings.

The International Finance Corporation (IFC) has launched two new Lessons of Experience publications on “The BTC Pipeline Project” and “External Monitoring of the Chad-Cameroon Pipeline Project.” The publications provide key environmental and social lessons and good practices for the benefit of staff, clients, and the wider private sector.

The sharing of project experience is an exemplary approach to risk management, it is excellent to see the IFC sharing their findings and contributing to the development of Good Practice in this way.

The Baku-Tbilisi-Ceyhan (BTC) Pipeline Project:
The BTC pipeline is 1,760km long and runs from Azerbaijan through Georgia to the Mediterranean coast of Turkey. At the time of its commencement, BTC was the largest crossborder infrastructure construction project in the world. The project faced a wide variety of complex and often difficult environmental and social challenges. Financing was agreed in February 2004 after more than two years of appraisal of the potential environmental and social impacts. Construction was completed in late 2005 and export from the new terminal in Ceyhan commenced in June 2006.
While it is impossible to capture all the challenges and complexities encountered during the design and construction phase of the BTC project, this publication focuses on six thematic areas where environmental and social lessons learned were thought to be most valuable and applicable to other IFC-financed projects.

External Monitoring of the Chad-Cameroon Pipeline Project
The Chad-Cameroon pipeline project is a US$3.5 billion development of an oil field in Chad by a consortium headed by ExxonMobil, and a 1,070 km long pipeline extending through Chad and Cameroon to the Atlantic coast. The External Compliance Monitoring Group (ECMG), funded and logistically supported by the Consortium, serves as the team responsible for auditing the implementation of the Consortium’s environmental and social commitments for this project. “External Monitoring of the Chad-Cameroon Pipeline Project: Lessons of Experience” provides lenders and project sponsors with an understanding of the business case for employing an external monitor, as well practical advice regarding the major steps and key issues for designing, implementing, and operating an external monitoring mechanism for complex projects. To highlight the practical challenges and value of the external monitoring mechanism, the publication draws illustrative examples from the experiences of IFC during the Chad-Cameroon pipeline Project.
PDF files can be downloaded at: http://www.ifc.org/enviropublications

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Risk in Project Finance

This site considers current news, key issues, articles, and new regulatory and guidance information from different viewpoints, including banks, legal firms, project sponsors, consultancies and NGOs in order to provide a wide spectrum of opinions.
In order to demonstrate why risk management so important, the site provides information and conflicting opinions from those who support and oppose the finance of key project. It also includes an evaluation of the different views on the various management techniques.

Financial Institutions

The various approaches and guidelines have provided invaluable risk management tools for Financial Institutions, and while there will always be critics of some of the finer details, the overall benefits have been overwhelming and far reaching. The banks have shown a highly impressive degree of co-operation and innovation in their approach to environmental and social risk management.